On January 1, 2020, Parent Company acquired 80% of the common stock of Subsidiary Company for $640,000. Subsidiary Company has common stock, other paid-in capital in excess of par, and retained earnings of $100,000, $200,000, and $300,000, respectively. Net income and dividends for two years for Subsidiary Company are as follows: Net income Dividends 2020 $120,000 40,000 2021 $180,000 60,000 On January 1, 2020, the only undervalued tangible assets of the Subsidiary Company are inventory and the building. Inventory, for which FIFO is used, is worth $20,000 more than cost. The inventory is sold in 2020. The building which is worth $60,000 more than book value, has a remaining useful life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill. Required: a. Using the information above, prepare the acquisition date fair value allocation schedule to determine and distribute the excess of purchase cost over book value (i.e., show your calculations in determining goodwill and how the excess of fair value over book value is allocated to specific accounts). b. Prepare the consolidation worksheet journal entries in order to consolidate Parent Company with its acquiree, Subsidiary Company. Be sure to label each journal entry.
On January 1, 2020, Parent Company acquired 80% of the common stock of Subsidiary Company for $640,000. Subsidiary Company has common stock, other paid-in capital in excess of par, and retained earnings of $100,000, $200,000, and $300,000, respectively. Net income and dividends for two years for Subsidiary Company are as follows: Net income Dividends 2020 $120,000 40,000 2021 $180,000 60,000 On January 1, 2020, the only undervalued tangible assets of the Subsidiary Company are inventory and the building. Inventory, for which FIFO is used, is worth $20,000 more than cost. The inventory is sold in 2020. The building which is worth $60,000 more than book value, has a remaining useful life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill. Required: a. Using the information above, prepare the acquisition date fair value allocation schedule to determine and distribute the excess of purchase cost over book value (i.e., show your calculations in determining goodwill and how the excess of fair value over book value is allocated to specific accounts). b. Prepare the consolidation worksheet journal entries in order to consolidate Parent Company with its acquiree, Subsidiary Company. Be sure to label each journal entry.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2020, Parent Company acquired 80% of the common stock of Subsidiary
Company for $640,000. Subsidiary Company has common stock, other paid-in capital in excess
of par, and retained earnings of $100,000, $200,000, and $300,000, respectively. Net income
and dividends for two years for Subsidiary Company are as follows:
Net income
Dividends
2020
$120,000
40,000
2021
$180,000
60,000
On January 1, 2020, the only undervalued tangible assets of the Subsidiary Company are
inventory and the building. Inventory, for which FIFO is used, is worth $20,000 more than cost.
The inventory is sold in 2020. The building which is worth $60,000 more than book value, has a
remaining useful life of 10 years, and straight-line depreciation is used. The remaining excess of
cost over book value is attributed to goodwill.
Required:
a. Using the information above, prepare the acquisition date fair value allocation schedule to
determine and distribute the excess of purchase cost over book value (i.e., show your
calculations in determining goodwill and how the excess of fair value over book value is
allocated to specific accounts).
b. Prepare the consolidation worksheet journal entries in order to consolidate Parent Company
with its acquiree, Subsidiary Company. Be sure to label each journal entry.
c. Using the information contained in the question, the information contained in your answers
to parts (a) and (b), and the acquirer's and acquiree's trial balances contained on the attached
worksheet, complete the worksheet in order to determine the consolidated balances on
December 31, 2021.
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